Communism

Communism, also known as a command system, is an

economic system where the government owns most of the
factors of production and decides the allocation of
resources and what products and services will be
provided.

The most important originators of communist doctrine

were Karl Marx and Frederick Engels. Like the socialists
before them, they wanted to end the exploitation of the
masses by the few. The capitalist system at that time
required workers to work under harsh and dangerous
conditions for little pay. The end goal of communism was
to eliminate class distinctions among people, where
everyone shared equally in the proceeds of society, when
government would no longer be needed.

Karl Marx agreed with Louis Blanc in how labor and

income should be managed: "From each according to his
abilities, to each according to his needs." However, it
seems clear from history that Adam Smith had the correct
principle, which is that people work in their own self-
interest.

Marx and Engels believed there was a class struggle

between the masses, which Marx called the proletariat,
who could only offer their labor, and the owners of the
means of production, which included land, raw materials,
tools and machines, and especially money. Karl Marx
called the ruling class the bourgeoisie. He believed that a
political revolution was essential because the state was a
central instrument of capitalist society, and since the
bourgeoisie had a stranglehold on the government, it
would be necessary to use force and violence to
overthrow the capitalists.

Although Marx and Engels believed that property should

belong to society, they did not really give much thought to
how economic decisions would be made. Communist
countries, particularly Russia and China, decided on
a centrally planned economy (aka command economy).
The centrally planned economy had the following major
attributes:

• The government owns all means of production,

which is managed by employees of the state.
• These employees operate under party-appointed
economic planners, who set output targets and prices
and frequently interfered with the operations to
satisfy personal or party desires.
• And because communist economies are not efficient
and because of the Communist Party's desire to
retain power, most economic resources were devoted
to industrialization and to the military, depriving
consumers of food and other necessary products,
causing intense competition for these limited
necessities, where many people had to wait in long
lines for common consumer goods, such as toilet
paper.

Another major feature of communist economies was their

emphasis on the country's self-reliance, discouraging
international trade and investment.

Major decisions were made by the highest-ranking

members of the Communist Party, which, in the Soviet
Union, was the Politburo. The Politburo frequently met
with the Central Committee that consisted of the heads of
the local Communist Party factions and government
ministries, the military, police, and other major
participants in the economy.

Although the purpose of communism was to serve the

needs of the proletariat, communist governments simply
became repressive regimes that exploited their people to
aggrandize their own power, exploiting the masses even
more so than the capitalists.

Capitalism
As long ago as 1776, the Scottish philosopher Adam Smith
set down many of the main principles of capitalism in his
now classic book An Inquiry into the Nature and Causes
of the Wealth of Nations.

Under capitalism (aka market system), each individual

or business works in its own interest and maximizes its
own profit based on its decisions. A market economy is
one where the allocation of resources and the trading of
goods and services are through the decentralized
decisions of many firms and households. The equilibrium
between supply and demand determines prices, which
determines economic output, which, in turn, determines
the allocation of resources.

The market system fosters competition that generally

produces the most efficient allocation of resources.
In pure capitalism, also known as laissez-faire
capitalism, the government's role is restricted to
providing and enforcing the rules of law by which the
economy operates, but it does not interfere with the
market. (Laissez-faire means "let it be.")
The essential characteristics of capitalism are that:

• the factors of production are privately owned;

• economic transactions take place in markets, where
buyers and sellers interact;
• businesses and employees are free to pursue their
own self-interest and are motivated to do so by the
potential to earn a profit;

Because consumers are free to buy what they want, the

competition for their funds will require businesses to
satisfy their needs, or else they will cease to exist due to
lack of sales. This consumer sovereignty is what effects
the efficient allocation of resources.

The main purpose of the government in regard to the

economy is to promote free markets, keep inflation low
and steady, protect the rights of private property, and to
guarantee contracts, which are necessary to conduct
business.

The main benefit of capitalism is the promotion of

competition. Although capitalism is usually described as
a private ownership of resources, it is competition that
provides the main benefit to society; the private
ownership of resources is necessary, but not sufficient,
for competition. In laissez-faire capitalism, businesses
become free to form monopolies or oligopolies, which
reduces competition, and thereby reduces the advantages
of capitalism. Instead, a plutocracy is created, where the
wealthy rule the economy for their own benefit.